Kuwait walks economic tightrope amid oil’s grip

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KUWAIT CITY, Jan 23: The General Secretariat of Planning’s report on the Kuwaiti economy has unveiled a perpetual and consistent connection between the Kuwaiti economy and global oil prices. Despite substantial government investments aimed at maximizing non-oil revenues and empowering the private sector to spearhead economic activities, these endeavors have fallen short of expectations.

This prompts the crucial questions: Where are the non-oil revenues, and what role does the private sector play in diversifying the local economy?

Analysis of the private sector’s performance over the past 12 years within the Kuwaiti economy’s macroeconomic framework reveals a consistent but uninspiring contribution. Throughout the first, second, and third development plans, the private sector’s share in the local economy fluctuated between 23% and 38%, underscoring its limited impact.

Interestingly, during economic recoveries, the private sector’s contribution to the GDP diminishes, while it increases during economic downturns. Notably, the private sector failed to play a significant role in rescuing the Kuwaiti economy from deficits, as evidenced by the highest recorded contribution of 38% in 2020 coinciding with the largest economic deficit in 12 years. The report attributes the economic challenges to the quality of government investment spending over the past 12 years, contradicting the vision that positioned the private sector as the economic leader.

The Kuwaiti economy experienced financial surpluses between 2010 and 2014 when global oil prices peaked at $100 per barrel. Conversely, in 2015, with a three-year consecutive decline in oil prices to $40 per barrel, the economy entered a persistent deficit, exacerbated by the substantial impact of the “COVID- 19” pandemic in 2020. The global economic recovery and increased oil demand played a pivotal role in mitigating the crisis, with oil prices reaching $100 per barrel in 2022. Since initiating the development plan in 2010, Kuwait has invested in projects with sustainable economic returns to achieve Kuwait Vision 2035. The first development plan focused on legislative preparation, the second on infrastructure, and the ongoing third on empowering the private sector.

Plans involve strengthening the knowledge economy and transitioning towards “Smart Kuwait 2035.” Examining the first development plan, government investments ranged from 13% to 18%, leading to a trade surplus of 36% to 48%. Private spending recorded between 24% and 29%, marking a prosperous period for the local economy. In the second development plan, government investments increased to 25-30%, resulting in a trade deficit in 2016. The ongoing third development plan witnessed fluctuations in government investments, ranging from 22% to 15%, leading to a trade deficit in 2020.

To enhance the private sector’s role in the local economy, the report proposes several recommendations:
1. Implementing development projects with sustainable economic returns.
2. Swiftly approving legislative requirements to prevent project delays.
3. Emphasizing urgency in achieving New Kuwait Vision 2035, focusing on creating economic zones, building a knowledge economy, reshaping government roles, promoting sustainable prosperity, and empowering citizens.

By Mahmoud Shendi
Al-Seyassah/Arab Times Staff

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